INDIRECT NETWORK EFFECTS, USAGE EXTERNALITIES, AND PLATFORM COMPETITION

ABSTRACT Platforms, or two-sided markets, have become a topic of significant discussion in competition law over the past decade, culminating in the recent US Supreme Court decision in Ohio v. American Express Co. This note discusses externalities in platforms. Indirect network effects, one type of externality common on platforms, have been prominent in these discussions. However, the prominence of indirect network effects has obscured the importance of another externality that exists on platforms, a usage externality. This note argues that a near exclusive focus on indirect network effects has led to errors in identifying when a market should be analyzed as a platform. These errors implicate the identification of platforms like those at issue in Ohio v. American Express Co. as well as a wider set of platforms, such as ad-supported media platforms.